A Lesson in Intuitive Economics from a Saloon on the Moon

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It was once a common practice of saloons in America to provide a “free lunch” to patrons who had purchased at least one drink. Many foods on offer were high in salt (ham, cheese, salted crackers, etc.), so those who ate them naturally ended up buying a lot of beer.

In his 1966 sci-fi novel, The Moon Is a Harsh Mistress, Robert Heinlein used this practice in a saloon on the moon to highlight an economic principle:

“It was when you insisted that the, uh, young lady, Tish—that Tish must pay, too. ‘Tone-stopple,’ or something like it.”

“Oh, ‘tanstaaﬂ.’ Means ‘There ain’t no such thing as a free lunch.’ And isn’t,” I added, pointing to a FREE LUNCH sign across room, “or these drinks would cost half as much. Was reminding her that anything free costs twice as much in long run or turns out worthless.”

“An interesting philosophy.”

“Not philosophy, fact. One way or other, what you get, you pay for.”

While the phrase “there ain’t no such thing as a free lunch” didn’t originate with Heinlein, he did help to popularize the concept. Nobel-winning economist Milton Friedman even used a variation for his 1975 book, There’s No Such Thing as a Free Lunch. Economist Campbell R. McConnel claims the phrase is the “core of economics“:

You may be treated to lunch, making it “free” from your perspective, but someone bears a cost. Because all resources are either privately or collectively owned by members of society, ultimately society bears the cost.

Most people who have heard the claim “there’s no free lunch” would agree. The phrasing makes the concept appear intuitive, even obvious. Economist Bryan Caplan thinks that, if framed in the right way, it’s easy to prove that most basic economics is intuitive:

To make my prima facie case, I’m going to present a few allegedly counterintuitive economic propositions, then explain them at a 6th-grade level.

1. Counterintuitive claim: Free trade makes countries richer, even if the other countries have big advantages like cheaper labor or more advanced technology.

Intuitive version: We’d be better off if other countries gave us stuff for free. Isn’t “really cheap” the next-best thing?

Intuitive version: If everyone gets the same share whether or not they work, you’re asking people to work for free. People don’t like working for free, especially when the work isn’t very fun. (This is my response to Sumner’s Great Leap Forward Challenge: “But how do we explain to school children that millions had to starve because of a policy that encouraged people to share?”)

The America public’s collective failure to grasp basic economic concepts has lead to political and economic policies that rob us of our freedom, empower the corrupt, and harm the poor. Translating economic principles into intuitive concepts that can be effectively communicated would therefore seem to be an urgent and necessary task.

1. People face tradeoffs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country’s standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints too much money
10. Society faces a short-run tradeoff between Inflation and unemployment

Heinlein has already helped us with the first: “There ain’t no such thing as a free lunch” is simply another way to say “People face tradeoffs.” But how can we succinctly explain the other nine? Leave your answers in the comments section and I’ll compile the best responses for a future post.

Joe Carter
Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

“Prices rise when the government prints too much money” The first step is to properly define money. Money is not the debt based, irredeemable currency that the government can “print”. The USD is a liability (debt) of the Fed and it comes into existence to buy government debt. The government does not have the means or the intention to ever repay these debts. Gold/silver are money and they are the only extinguishers of debt.

Prices in dollars can actually fall as the government “prints” more currency to purchase debt. In 2008, as interest rates rose, the banks holding government debt as “assets” collapsed and prices fell dramatically. And today in 2014, the prices of many commodities have fallen dramatically despite massive amounts of QE.